The Energy Emergency
Oil is America's Achilles heel. WE are addicted to it. Every American consumer burns about double what a European consumes—26 barrels a year for us, 12 for Europeans. We have 5 percent of the world's population and consume 25 percent of the world's oil, and we have only 3 percent of the world's reserves. If you think there is a gas crunch now, marked by the largest oil price spike in a generation, it will be a bagatelle when China and India bring a couple of billion more people on to their highways: They are replicating our love affair with the automobile. Expect them within a generation to buy 80 million cars.
We are in a new world order. The balance of power has shifted between the fuel-guzzling West and the oil-rich producing countries. They have increasing leverage over us, with political, economic, and military consequences. We are literally over a barrel.
Here's how the chips fall. After World War II, the oil world was dominated by the "Seven Sisters," the name given to the oil companies controlling Middle East oil. These have shrunk to four: Chevron, British Petroleum, Exxon Mobil, and Royal Dutch Shell. They have been pushed aside by seven state-owned national companies, Seven Brothers, if you like: Saudi Arabia's Aramco, Russia's Gazprom, CNPC of China, NIOC of Iran, Venezuela's PDVSA, Brazil's Petrobras, and Petronas of Malaysia. The Seven Brothers control almost a third of the world's oil and gas production and more than a third of its total oil and gas reserves. By contrast, the survivors of the Seven Sisters control only about 10 percent of output and hold just 3 percent of the reserves. The Brothers are the rule makers, the international oil companies the rule takers. It is not going to change. In the next 40 years, 90 percent of new supplies, according to the International Energy Agency, will come from developing countries. Thirty years ago, 40 percent came from the industrialized nations.
Massive consequences. Nor is oil discovery keeping pace with demand. In 1930, we found 10 billion new barrels of oil and used 1.5 billion; in 1964, we discovered 48 billion barrels and consumed approximately 12 billion; in 1988, we found 23 billion barrels and used 23 billion barrels; in 2005, we found 5 billion to 6 billion barrels and consumed 30 billion barrels. With countries like China and India now in the mix, worldwide demand is growing by an average of 2 million to 3 million barrels a day every year. The world has to discover a new Saudi Arabia-size oil supplier every five years to meet this demand. But it's just not going to happen. These overwhelming numbers could produce oil prices above $100 a barrel in short order, which will ultimately have massive consequences for the world's economy and the way we live our lives. They might well cause a global recession.
How will we in the West cope when by 2030 the IEA nations will have to import 85 percent of their oil (it's 63 percent today)? None of the oil companies are investing enough. Big Oil in the West is allocating as much as 60 percent of profits to dividends and stock buybacks and reinvesting only about a third in the oil business. And the Seven Brothers are keeping an ever tighter leash on both production and investment.